The claims handling industry is facing an omnishambles of challenges. Skyrocketing building costs and massive delays in reconstruction have created a perfect storm – making it nearly impossible to predict final costs and driving insurers out of their wits.
“There’s just so much to wrap your hands around,” Peter Schifrin (pictured), president of SGD, told Insurance Business. “The huge surge in claims and the ability to service all of those policyholders effectively … this is such a different event. Instead of being able to go out there and know that you’re going to easily be able to adjust that claim and come up with a number and pay proper indemnity, with this huge surge and the huge delay in rebuilding it’s very hard to predict what the costs are going to end up being.”
And what makes this crisis even more difficult is the reality that many homeowners will find themselves underinsured, unable to fully cover the costs of rebuilding.
“There are going to be a lot of people who are going to find themselves without enough coverage, and we’re not really even sure how the market is going to respond to that, or how the legislature is,” Schifrin said. “So it’s going to be a long time period of challenge to try to figure out the endpoint.”
The volume of claims alone is enough to stretch resources thin. In a standard event, such as a windstorm in Iowa, claims can be processed quickly – roofs get torn off, insurance payments are issued, and homeowners repair the damage. But this is entirely different.
“You’ll be making the initial claim payments to people, but then you’ll be waiting for them to declare whether they’re going to replace that property or buy another property, or you’re going to be waiting several years for them to be able to rebuild,” Schifrin said. “So, you’re going to have open claims and open reserves, and even just from a staffing standpoint, the people you bring in are going to go home.
“And now you’re going to have a whole bunch of claims that need to be serviced by regular day people. And there’s not enough of them. It’s a logistical issue.”
The rebuilding process itself comes with additional complications. A huge driver in how to write a proper repair estimate or rebuild estimate is looking at what the various municipalities say is now an acceptable build. As an example, many homeowners who previously had wood-shingled roofs will now be required to use metal or tile, drastically altering costs.
“Who knows what that’s going to do to the total cost and the total repair time?” Schifrin said. “As an adjuster, you can’t write a final proper number until you know what the code’s going to say and what the contractors are going to charge to do the work.”
The industry will also be forced to address fire resiliency and future-proofing. Events like the Maui fires have shown how devastating wildfires can be, and the rising cost of rebuilding means that insurers and regulators will need to take a hard look at fire-resistant materials and construction methods.
Technology, however, is playing an increasing role in helping insurers respond more efficiently. Research from Conning found that 77% of insurance companies are at various stages of integrating AI into their operations, with 44% having already adopted machine learning and predictive analytics across their value chains. What’s more, the global insurtech market is projected to grow at a compound annual growth rate (CAGR) of 10.8%, reaching $33.73 billion by 2025. In North America alone, the digital insurance market is forecasted to reach $60 billion by 2024.
“This probably wouldn’t have … happened 20 years ago, maybe not even 10 or five – but it’s more prevalent now,” Schifrin said. “Let’s say you have a total loss of your property. I can verify that without going to your home. I don’t need to go out there and see that your home is destroyed. I can do that with a satellite view. Or there are some websites that are doing drive-bys or fly-bys.”
These advancements allow insurers to process claims more quickly, making initial payments without having to send an adjuster on-site. And, looking ahead, Schifrin believes artificial intelligence will play a greater role in claims processing. However, he sees even more potential in AI’s impact on underwriting, a point that chimes with the market sentiment in general. Data from CoinLaw found that, as of 2022, over 75% of large insurance companies have implemented AI for underwriting, claims processing, and fraud detection – with that figure projected to rise to 90% by 2025.
“I think AI in the underwriting process is a far more gigantic future way of looking at how you decide what risks are and what you charge,” Schifrin said. “Because claims still is a people business, but I could still be far more efficient than we used to be in handling those claims. It’s going to take years and years to clean up and sort out.”
